TaxTMI 
TaxTMI 
2025 (7) TMI 755
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....n facts. 2. That the Ld. CIT (A) has erred in law as well as on facts by upholding the addition of Rs. 1,23,26,025/- on account of disallowance of payment of royalty without appreciating the fact and circumstances of the case and without considering the fact that circumstances of the case and without considering the submissions made by appellant during the course of proceedings. 3. That the Ld. CIT (A) has erred in law as well as on facts by upholding adhoc 25% of the addition made by the Ld. AO of Rs. 60,02,700/-, i.e. Rs. 15,00,675/- on account of disallowance of payment of consultancy charges u/s 37(1) of the Income Tax Act, 1961. 4. That the Ld. CIT (A) has erred in law as well as on facts by upholding the addition of Rs. 3,57,21,600/- on account of disallowance of excess rent paid. 5. That the Ld. A.O. has erred in law as well as on facts by initiating penalty under section 271(1)(c) of the Income Tax Act, 1961. 6. As the above additions are bad in facts and in law and are baseless, hence the interest charged u/s 234A, 234B and 234C may also be deleted. 7. That the appellant reserves the right to add, modify, alter, amend o....
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....the trust was entitled to use the name 'GDG' or ' G D Goenka', even without signing the MoU, therefore payment of royalty is serving no purpose of business. For an expense to be deductible, Sec. 37(1) requires that it should be 'wholly and exclusively for the purpose of business'. This is not the case here. 6. With the above observation, he disallowed the abovesaid royalty expenditure. 7. Aggrieved assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. After considering the above, ld. CIT (A) dismissed the grounds raised by the assessee by observing as under :- (i) The appellant has been registered as GDG Charitable Trust. There is no logic or reason why such huge substantial expenditure would be made for payment as royalty, for using the name which was already being used by appellant. The appellant is a Charitable Trust and any expense of the trust has to be spent on activities solely for the purposes for which the trust was founded. This expenditure of Royalty payment is not justified and the reasonableness of the same is not established. Further, whether the expenditure was commensurate to any benefit arising to the Trust, is also not ....
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....e the activities of the assessee trust are treated as business activities and not 'charitable' the expenses incurred is to be allowed as having being incurred during the ordinary course of business. The expense has been incurred wholly exclusively for the activities carried out by the assessee. 3.4. There is another aspect of the matter. It is worthwhile to point out that the payee i.e., GD Goenka Pvt. Ltd. has duly shown the Royalty income in there Income Tax Return and taxes have been paid. There is no loss of revenue and, thus, the disallowance made by the assessing officer is unjustified. 10. He also brought to our notice relevant agreement which is placed at pages 151 to 159 of the paper book for AY 2010-11. 11. On the other hand, ld. DR of the Revenue brought to our notice page 3 of the assessment order and page 14 of the appellate order and submitted that he relies on the above findings of the lower authorities. 12. Considered the rival submissions and material placed on record. We observe that assessee has claimed royalty payment made to G.D. Goenka Pvt. Ltd. for the usage of the name G.D. Goenka. The AO observed that the name of the assessee itsel....
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....ent proceedings, the AO observed that assessee has debited consultancy charges of Rs. 60,02,700/- in its Profit & Loss account under the head 'Professional Expenses'. During assessment proceedings, the assessee was asked to give justification for consultancy charges in the absence of any agreement and terms & conditions etc. In response, assessee submitted copies of invoices raised by various parties. After considering the same the AO observed that assessee has stated that the services of the consultants and educationalists were engaged to mark the G.D. Goenka old institute. He observed that no agreement/contract was signed with consultants/educationalists who have been paid professionals on account of consultancy on month to month basis. The qualifications and competence of such persons in such field is not known nor the terms & conditions of professional consultancy services accepted to be rendered in each year is unknown. In absence of above said documents, he dismissed the consultancy charges claimed by the assessee u/s 37(1) of the Act. 14. Aggrieved assessee preferred an appeal before the ld. CIT (A) and filed submissions as under :- "The AO has disallowed the tot....
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....ed by the assessee by observing as under :- "I have gone through the submissions of the appellant as well as the observations made by AO in the remand report. The appellant has given details of the entire amount of Consultancy charges paid by it to various persons. These were paid for engaging persons for short period of time, either to take classes or to help out in running the administrative functions. The payments were made by cheque & even TDS was done in most cases. It is well known fact that the educational institutions engage temporary teachers or qualified professionals for short period, to take classes/ sessions for the students and to fill the gap for shortage of teaching staff etc. There may or may not be any agreement or contract with each one of them. The fact that they were being paid through banking channels and even TDS was deducted at the applicable rate, suggests that the expenditure was indeed incurred. On the other hand, the AO too has not brought out any cogent material on record to justify the disallowance of entire expenditure made in this regard. However, as the matter is not fully ascertainable because the appellant was unable to ....
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....riod to conduct classes or to hold the functions of the administration. He also appreciated the fact that there may or there may not be any agreement or contract with each one of them. Since these payments were paid through banking channel and relevant TDS were deducted, it suggested that expenditure is indeed incurred. After considering the facts available on record, the assessee has incurred and utilized services of different persons and it is fact on record that to run a school, it needs several professional and temporary teachers to run the school efficiently. The assessee has submitted payment to various consultants through bank and deducted relevant TDS. It clearly shows that the services of the consultants and teachers are required for running of the business and there is no reason for assessee to pay these consultants who are not related or having any interest in the Trust. Therefore, these payments were made to unrelated persons and ld. CIT (A) has already acknowledged the fact that there may or may not be any agreement and based on the affidavit filed by the assessee, in our considered view, these expenditures were incurred solely and wholly for the purpose of business, t....
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....s justified to claim the same for AY 2012-13 not in the assessment year under consideration. 21. Aggrieved assessee is in appeal before us and filed detailed submissions as under :- "1. Rent During the year under consideration (A.Y. 2011-12) the appellant has paid rent of Rs. 7,41,21,600/- to G D Goenka Pvt. Ltd. detailed as under: - 70000 Sq Ft @ Rs 80 per Sq Ft P.M for 12 Months = 6,72,00,000/- Add: - Service Tax @ 10.3% 68,21,600/- 7,41,21,600/- 1.1. Upto 31/03/2010, the area taken on rent was 40,000 Sq ft. However w.e.f. 01/04/2010 (Academic Session 2010-11), the leased area was increased to 70000 Sq ft as per the request letter dated 15/03/2010 of the assessee. However, on the said request letter, due to typographical mistake, the date was typed as 15/03/2011 instead 15/03/2010. The same was clarified to the assessing officer that it was only a typographical error and the effective date was 01/04/2010 which is evident from the contents of the letter (on which date was wrongly typed as 15/03/2011) that the same was for the academic year 2010-11. It is known fact that academic year commences in April and accordingly, the sam....
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....g additional space for renting the school. However, the letter submitted before AO contained the date as 15.03.2011. It was submitted before us that it is a typographical error and the date should have been 15.03.2010. It was submitted before us that the assessee has increased the strength of the students and that required additional space to run the school. It was submitted that it was supported by the increase in revenue collection for the year under consideration. It was submitted that the Revenue declared during the year was Rs. 19.88 crores as compared to Rs. 9.37 crores in the immediately preceding assessment year. It was submitted that the revenue has almost doubled during the year and also it has continued in the subsequent assessment year 2012-13 and 2013-14 with the revenue of Rs. 14.28 crores and Rs15.24 crores respectively. It was submitted that not only revenue has been increased, expenditures were increased in line with the increase in revenue. It was prayed that the typographical mistake in recording the letter may be overlooked and considering the increase in revenue which supports the requirement of additional space in this case. After considering the detailed subm....